Emotions While Trading

[traderpsyches 10]

[1. If you are mentally drained (i.e. you have a lot going on in your life)- it is best to take a breather from trading.

--

 

This is true in the macro and the micro. Traders underestimate the role their general psyche plays in their overall results. For example, if you are tired from getting too little sleep, you will be more impulsive. If you are getting a sore throat, same thing.

 

The psyche and the brain that runs it is VERY much dependent on the physical body, therefore, you have to have the physical energy to run the psyche to help you see your trades and stick to the plan Mea is mentioning.

 

Heeding your internal signals and staying out of the market when your mechanism for execution isn't up to par, increases the odds of higher profitability at the end of the month. ... this is the true joint probability distribution of psychological capital and trading plans.

[james_gsx 16]

I trade the same technical setups, but my plan for each trade is different. No one trade is the same, and each trade has a different setup around it and I plan to adjust that plan as the trade works for or against me. I'm very discretionary, and it works for me. In fact it challenges me to learn more, and become more creative in my markets. Will it ever become completely automated? Definitely not. I pride myself in being able to make quick decisions by looking at a few charts, and being write most of the time.

 

At the end of the day everyone is different. Some people are very specific and therefore have a very specific plan. They couldn't do anything else, and they trade markets that allow them to do that. What kills traders is they trade in such a way that doesn't agree with their personality. They might WANT to be highly discretionary, but they simply aren't. Or (one of my biggest problems for a while) they try to be very specific, and later find out that doesn't work for them.

 

I've found two styles of trading that fit my personality very well. I know this works because I spend hours learning and taking notes. I am able to become creative, and use talents that I never thought I could employ while trading.

 

The first one is the options market. When I first started I was completely lost, then I found how much math surrounded the options market and thats when I started to become more interested. I studied various strategies, practiced them on simulators while utilizing live capital for other various strategies. Eventually I began to realize what a friend had been telling me all along, that it was fools game. That's when everything started to click, I realized I could essentially be the house and sell to the newbie. I studied various professional traders and the strategies they use, and now I'm hooked.

 

The second is the ES. I love the fast tempo and the competition. I can't say I'm as good as I am in the options market, simply because of time constraints. But I know I will become very proficient there too.

 

But my trading plan for both is simple, it allows me to trade reputable patterns in the market but at the same time be discretionary and use my imagination to take advantage of various discrepancies in the market.

[traderpsyches 10]

"What kills traders is they trade in such a way that doesn't agree with their personality. - "

 

I couldn't agree more. Neuroscience shows that "it isn't enough to KNOW what to do, one has to FEEL it also" (Camerer, Lowenstein, Prelec, Journal of Economic Lit, March 2005). ... this is the psychological/brain design reason that everyone have to find a system that fits their personality.

 

For example, I work with a former bond floor trader who was used to scalping and trading a LOT. When he moved to the screen everyone told him he had to get indicators and a system and .... he did terrible - even though he had regularly made seven figures in the pit. Guess what works for him? Scalping in the bonds...

[Soultrader 12]

"What kills traders is they trade in such a way that doesn't agree with their personality. - "

 

I couldn't agree more. Neuroscience shows that "it isn't enough to KNOW what to do, one has to FEEL it also" (Camerer, Lowenstein, Prelec, Journal of Economic Lit, March 2005). ... this is the psychological/brain design reason that everyone have to find a system that fits their personality.

 

For example, I work with a former bond floor trader who was used to scalping and trading a LOT. When he moved to the screen everyone told him he had to get indicators and a system and .... he did terrible - even though he had regularly made seven figures in the pit. Guess what works for him? Scalping in the bonds...

 

Hi traderpsyches and welcome aboard. Would you mind sharing with us how a trader would go into the self discovery of finding the type of style that fits his or her personality. I have found mine simply through trial and error but I am thinking there was probably a better way to do so and would of avoided alot of pain. Thanks.

[DbPhoenix 42]

Hi traderpsyches and welcome aboard. Would you mind sharing with us how a trader would go into the self discovery of finding the type of style that fits his or her personality. I have found mine simply through trial and error but I am thinking there was probably a better way to do so and would of avoided alot of pain. Thanks.

 

In addition to what traderpsyches has to offer, you may find the following post by jasont useful:

 

Ok guys I'm not sure if anyone is actually reading this thing but I thought I'd try to help people discover what to trade. I'm going to disclose a few things about how I found my trading niche and offer some ideas to help people find out their niche. This may be a long post so if you want some help picking a niche, grab a coffee or beer before starting to read. List what you find so you can help keep track.

 

When I first started trading I was foolish enough to jump in without doing my homework. I jumped into trading a time frame that wasn’t suited to me and trading an instrument (options) that didn’t utilize my personal talents and advantages. So over time I managed to find the right instrument and time frame to trade but how did I go about it?

 

I actually found the time frame and instrument a bit blindly to be honest. I actually stumbled across them and then did the following stuff afterwards to clarify that it was the right thing for me. Hopefully if you’re reading this you can do it before backtesting or simulation trading a method so you don’t waste your time.

 

After reading a great book by Brett Steenbarger entitled “The Psychology of Trading” I realised the importance of finding a trading method that suited my personality. It is very important that you are trading a time frame that suits your personality, this doesn’t mean one that suits your other out of market commitments, that is very different.

 

Just because you work a day job doesn’t mean you should be trading according to daily time frames because the only time you can get to the screen is for fifteen minutes to see the close. First find what time frame suits you and then figure out a way to do it around your work or outside commitments. Being that we are in the thick of global economies you can trade any market around the world from you own home pretty much. So how did I the right time frame and market instrument and how can you find it?

 

Look at Past Activities and Sports

 

I started by looking at past activities and sports I enjoyed. By doing so I managed to find an interesting pattern. I always seemed to play sports that were reasonably fast paced. They included football (Australian Rules as I am from Australia, Ice Hockey, Basketball and Tennis). The one I liked the most out of those was Ice Hockey because there wasn’t really a dull moment for any player whilst on the Ice.

 

Another pattern was particular video games I used to enjoy. They were always ones that were action packed but still required strategy. Shooting games that needed you to be quick but at the same time take everything in that was on screen and work out how you’re going to get to the next area. I didn’t mind the thinking type games such as Command & Conquer and Sim City but I always found they took too long to get things done.

 

Another fast activity I enjoy is riding my motorbike. I like riding around the mountains going as fast as I can but still leaving something in reserve should I need to avoid a road hazard or get out of a bad situation. Here was another clue, I didn’t like putting myself totally on the line, something to keep in mind for risk management.

 

So looking at my history of things I enjoyed, I realized they were all pretty fast moving activities. Previously I had been trading longer term instruments where trades would last for weeks. Obviously not fitting my past activities I enjoyed.

 

So first thing you need to do is look at the activities you have enjoyed in the past and the nature of them. You may enjoy Baseball, Golf or playing Poker which are activities that give you more time to think about your next move.

 

So I had found that I needed something which had a bit more action and was quick. I then needed to find out my personality traits and talents. To do this I looked at how I interacted with people on a social level and what my subjects I gravitated towards in School. You can do the same for College or University or even look at your job.

 

Finding Personality Traits and Talents

 

First starting with school. I was always someone who picked things up very quickly, I’m a fast learner. Another clue to what I should be doing. I never enjoyed nor was I good at History, Math and Science. I enjoyed English, Graphics, Theatre/Drama and Sport. Right there if you read between the lines it tells you that I don’t like the subjects with heavy calculations and rules. I liked subjects with creativity but didn’t like the rules accompanied with Math and Sciences. History required intense study of the past and remembering of facts and information. So I realised I had a liking for and a talent of the creative subjects but without using hard statistics.

 

If you think about your School or College/University days and your current workplace, you can find out what areas you were good at and just as importantly what areas you enjoyed. You need to find areas that you enjoy and that you are good at. Both are important.

 

I then thought about my social life and what I tended to do in conversations and groups. I noticed that I was a quick thinker when it came to talking with people. When I am in a conversation I think about what the person I am talking to will say in response to what I am going to say, before I say it. So like a Chess player who thinks moves in advance, I think conversations in advance. I then try to lead the conversation to the direction I would like it. That was another clue, I seemed to put possibilities together before they happened.

 

I also noticed that I would constantly look for signs in people to tell me that they are enjoying the conversation or looking for something different to talk about. This is when I realized that I liked looking for things people were saying without saying it verbally. Another clue for trading that I tended to look for things that were being told but without being obvious. The last thing I realized was that I was creative in my humor. I would not tell a joke straight, I would make a comment that would get people to think about the joke. Instead of telling a punch line I would give people a reference to come up with the punch line themselves. This was another clue into my personality trait of thinking ahead and my creativity.

 

At School I always was a bit different to everyone else. I wouldn’t do things to fit in, in fact I deliberately would go out of my way to do the opposite of what most people did. Yet some how I managed to still be well liked by the majority of people in school. This was another clue that I didn’t like to follow crowds, I also didn’t like to follow the rules of the School. If there was a rule I thought logically didn’t make sense, I wouldn’t follow it. Things such as wearing a tie with the uniform or being cleanly shaven.

 

Just take some time to think about your own social experiences. You need to be honest with yourself. If you were someone who was comfortable fitting in with everyone else, write that down. It will help determine whether you should be following the trend or going against the grain. There is no point going against the grain if every time you do, you feel unsafe and sick in the stomach because it doesn’t fit with your personality. You also want to think about how you interact with people and whether you are quick in your responses or whether you like to take your time to think about what you say. That can tell you if you suit a fast paced market or a slower moving one.

 

How You Drive Your Car

 

The last thing I thought about was how I ride my motor bike and drive my car. I look for people in their cars turning their heads to see if they are going to change lanes. I look at the front tires of a car to see if they are going to come into my lane. I watch the car and how they move within a lane to see if they are a reasonable driver or a terrible one that is moving from one side of their lane to another. I drive a touch faster than everyone else on the road because I rather keep my eyes on the people in front of me instead of having to watch people next to me and coming up from behind me. These are clues to what I tend to gravitate towards. I am observant of things that aren’t so obvious and I am very individual.

 

There are many things you can find out about yourself in regards to how you drive your car and if you follow the rules strictly or believe it is safer for you to do something else.

 

Think about anything else you can to tell you what your personality is like. I wear clothes in the same style I have worn for ten years. I don’t care if the fashions change, I know my style and I stick with it. I am “street smart” more than academic smart. I like to learn on my own more than being taught by someone else because I think I can learn it myself.

 

List Your Findings

 

Whatever you think of, slice it up and look at the hidden meaning behind it. Then once you have a list of things you do, you then need to see how that relates to trading. I wrote my list that looks something like the following.

 

Don’t like to follow rules unless I agree with them

Good at seeing between the lines

Like being creative

Like things fast paced with action

Don’t like to overexpose myself and feel unsafe

Don’t like following the crowds

 

Look For Markets That Suit Your Findings

 

So how did I know to trade futures in an intraday time frame? Well I learnt from a past mentor that certain markets should be traded at certain timeframes. Here is the following:

 

Equities should be traded using daily charts

Options should be traded using weekly charts

Futures should be traded intra day

Forex should be traded intra day

 

Now this is not set in stone and only my opinion. I am sure there are people out there trading these instruments in different timeframes to what I have mentioned. The reason these are like I have listed them above is because of the volume traded. Equities are traded a lot but there isn’t the liquidity to get in and out of positions as easily as forex and futures. Don’t forget I am from Australia and our market is not as Liquid as the US or London markets.

 

Considering I wanted to trade quickly, not be exposed to things out of my control and have a bit more discretion in my trading, I realised the Futures were my most suited trading vehicle. I trade them looking at a 5 minute basis and e-minis in particular have high liquidity. I trade against the grain but follow the overall flow of the market. I use the NYSE Tick to tell me that the equities are doing something different to the index futures, looking between the lines. My other indicators are guides and not strict rules where I must do X if Y occurs. I have the freedom to interpret markets.

 

If you get your list of what you are after, you can find a rough time frame to trade such as intra day charts, daily charts, monthly charts, or maybe no charts at all. You may find you are good at reading business statements and use fundamentals.

 

You can then work out your style of trading whether you like to trade with the grain or against the grain. There is no inbetween. Your either trading as the market is moving or your trading as the market is stalling looking for the opposite direction. You can find out if you need strict rules to tell you what you should be doing or whether you trust your own judgment to make the strict rules simply guides.

 

This should hopefully get you headed in the right direction and give you some guidance. Once this stuff is figured out, look for a mentor who trades in a similar way to what you’re looking for or ask around forums for what people recommend according to what you’re looking for. At least you will start in the right direction and can focus on the plan instead of asking whether you are in the right niche.

[traderpsyches 10]

DB's answer covers almost innumerable helpful hints - imo.

 

Things people tend to overlook include

1) what time do I really have to trade

2) when am I most mentally and physically available

3) how patient am I? how hyper am I?

4) how patient can I be?

5) how much risk can I take on any one trade without getting overloaded with anxiety?

---

and then

1) How systematic am I. How comfortable am I with a formula?

2) What do I already know that I can capitalize on?

 

THIS is the big one. The standard pattern is to run into a series of losers and change the market or timeframe that is traded. After a couple of rounds of this, it isn't likely to be the strategy/tactics. This is when it is time to look back at your experience and ask "what feels right to me?" NOT what I am told by someone else but what timeframe pace, rhythm etc. It takes some guts to listen to and essentially honor your own experience but that is really the clue.

 

If you have less than 2-3 years of experience, then you have to go with a trading educator who teaches a methodology that seems right and is run by a person who you feel good about it.

 

All of this is a judgment call and as such, we all have the tendency to doubt ourselves. The best answer I can give is review some of DB's (jason's?) questions above along with my comments and then realize that if you have more than 3 years of experience, chances are you know lots more than you think you do.

 

One more thought - it is usually best to throw out some number of indicators and charts. Invariably everyone clutters up their strategy and tactics with more stuff than they need.

 

I hope that helps - at least a little.

[Guest forsearch]

Denise,

 

I hope you don't mind if I post a link to a recording of one of your CME webinars...

 

Peak Performance Electronic Trading - How thoughts, actions and emotions govern your trading

 

I think traders might benefit from watching you, Brett Steenbarger and Doug Hirschhorn discuss this topic in depth.

 

-fs

[traderpsyches 10]

-fs

 

No I don't mind.

 

There is a new one at the CME from 2007 versus 2006.

 

It is more comprehensive regarding our approach to advanced trading psychology.

 

http://www.cme.com/edu/events/od/general.html

 

I don't see how to make that a link but I guess anyone who is interested can copy it.

 

TP aka DKS

[Guest forsearch]

Here's a direct link to your newer CME webinar for all to view:

 

Handling Exaggerated Trading Emotions: Issues & Answers

 

Hope this helps.

 

-fs

[Wilson 10]

Here's a good article from mypivots forum.

 

 

 

 

You can easily judge the character of a man by how he treats those who can do nothing for him.

- - Malcolm Forbes -

 

 

A Time and Place For Emotions

 

 

Winning traders are extremely disciplined. They astutely study the markets, devise a trading plan, and follow it. They control their impulse to abandon their plans prematurely, and they don't allow emotions, such as fear and greed, to influence their trading decisions. In the trading profession, emotions often get a bad rap, however. There are critical moments of investing when it's vital to control your emotions, but there are also times when you can let your emotions run wild.

 

Trading can be broken down into two basic phases: Planning and Execution. In the planning phase, a trader creatively searches for trading ideas and develops a viable trading plan. During the planning phase, you can feel free to experience a variety of emotions. When you execute your trading plan, though, it's essential to control your emotions and impulses. Once you plan the trade, you must trade the plan in order to take home profits.

 

During the planning stage, your goal is to find new trading strategies. It's a creative process, and to find them, you cannot be closed off and rigid. Not only is it all right to allow your emotions to guide you, it may be necessary. It's all right to psych yourself up. Get excited and enthusiastic. You need the energy to do the homework to discover an innovative idea. Depending on your trading style, you need energy to backtest, scan charts, or read financial reports. Go ahead and tell yourself encouraging thoughts, such as "I'm a creative person. If I let my imagination run freely, I'll think of a brilliant idea." When you're in the creative planning stage, you can think emotionally.

 

As you search for ideas, feel free to impulsively switch from one idea to the next. Combine and recombine ideas. What's the harm? You're trying to find a new idea. At some point in the creative process, you might even want to show some self-reproach or even paranoia. You might want to play Devil's Advocate as you try to figure out what might go wrong. In the planning stage, it's useful to defensively think of every potential adverse event that may ruin your trading plan. A little skepticism can only help matters during the planning phase.

 

At some point during the planning phase, though, you must stop searching and deliberating and decide on a plan. You must specify when to enter and when to exit, and determine the indicators that will allow you to monitor the success of your trading plan. Once you have a plan devised, your emotions and impulses must be controlled. At some point, you must stop thinking emotionally, and move into a rational state of mind. You must carefully enter as planned, monitor the market action, and effortlessly exit should the markets go against you, or wait for your plan to come to fruition.

 

Emotions aren't always a distraction while trading. There is a time and place for everything, and emotions can motivate us to develop creative ideas. But once you move from the planning to the execution stage, it's essential to trade with discipline. The disciplined trader is the winning trader.

[liowkc 10]

Ghandi has a similiar saying - the way its people treat the animals reflect on the country.

 

Anyway back to the topic of emotions in trading; if you can control greed and fear, you are on your way to trading success!

[traderpsyches 10]

 

Anyway back to the topic of emotions in trading; if you can control greed and fear, you are on your way to trading success!

 

Actually, the only thing anyone can control is their actions... I am currently writing a paper for the CME group that will reference a number of studies.. including a new one out of Stanford and Northwestern that show we absolutely will have (and others that show we must have - LO at MIT) these emotions to make decisions. I can show you how trying to control the emotion is actually the most dangerous piece of trading advice ever given.

 

Be as emotional as you are - whatever that is - just be careful what makes your finger hit the mouse key - actions are the key.

 

DKS

[Kiwi 16]

Denise,

 

Although I agree that suppressing emotions is a bad idea - once they arise they should be recognized and addressed - it is possible to take actions that will reduce the frequency and strength of emotional response to an event.

 

I think that strategies to 1) reduce the generation of emotional responses (and their strength) and 2) keep the forebrain in control when the emotions do arise has been the most useful thing I've gained from your material.

 

I've been pleasantly surprised by my ability to achieve both of these things by a combination of reading scripts at critical points (actively reading seems to avoid involvement) and by changing how I perceive certain situations to prevent emotional responses that used to plague me.

 

I've been disappointingly unsuccessful at digging deep for the archetypes but it seems that I haven't required that so far.

 

Something you might enjoy if you haven't run into it already - the concept of self binding is very interesting and relevant to the trading environment (even if multiple selves don't prove to be the ultimate model of choice)

 

First Person Plural

[zdo 20]

For future reference - re:

"I've been disappointingly unsuccessful at digging deep for the archetypes but it seems that I haven't required that so far.

when and if it seems that you do require that, check out Voice Dialogue originated by Hal and Sidra Stone - plenty of good innovative facilitators down in your neck of the woods...

re

disappointingly unsuccessful

It's best to have some help getting at least the main players with strong voices and a quorum of the 'disowned' 'selves' (don't particularily like the 'selves' term but...) mapped / into awareness. Once these and their relationships (bondings, bindings, etc) are cleared, then you are ready to go on your own with the many 'selves' (liking that term less and less) that have no 'voice' and never will have voice ...

 

...(even if multiple selves don't prove to be the ultimate model of choice)"

 

all the best

 

zdo

[minoo 11]

Mentally exercise your emotions, so you dont land up executing them

Open Mind energy (OMe ..) keeps my emotions in place and in markets moment. Healthy pre-trading routines and preparation helps

 

Playing probability is not a game of high accuracy, but of positive expentancy

Known expentancy of my edge, whenever employed consistently, makes me a big or small winner

 

I do believe in employing simple systems consistently

Systems with too many charts or indicators creates psychological problems for traders

New & struggling trader simply falls in the trap of making ones system desirably highly accurate;

This increases the complexity & analysis, in turn over uses mind, provokes untimely thoughts & reasoning, & arises emotions.

Emotion seperates trader-self from one owns Objectives and Triggering mechanisms; Hence emotions gets traded / executed

Which quite often than not results in loss; But emotions can trade these same mistakes again and again

 

The irony is many traders believe that when their system will get more accurate, emotions will be taken care of. And hence the focus remains on making the system more accurate, more complex rather than simplifying

 

Enjoy Minoo

[traderpsyches 10]

While it is understandable that the mental dimensions of thinking versus feeling seem complicated, in reality they are lots simpler than many people make them.

 

Here are some facts to hopefully help simplify -

 

1) Your brain is going to use feelings to make a decision. PERIOD. So... the question is how to put yourself in a state where those feelings are working for you in the pursuit of profitable trades?

2) The more indicators you have the more your brain is going to use shortcuts - or heuristics - and rely more on feel than anything that resembles a mathematically updating probability machine. Hence, simplification is best.

3) If you manage to the energy of your feelings - by avoiding trading when you are tired or there is emotional static of noticeable types - your w/l ratio and productivity will go up. In other words, you don't need to take every trade in your system - only a computer can or should try to do that

4) The core feelings anyone is going to have are

a. wanting more .... = fear of missing out

b. wanting less ... = fear of losing or being wrong.

Both of these feeling dimension are going to tap into a part of you that feels insecure about who you are, your position in life, what your partner or parents want... or..... Everyone has this feeling and the constant judgement nature of the market taps into it.

5) Most likely the various internal voices are the voices of your parents - or at least your childhood interpretation of those voices - but they will circle back to the feeling of insecurity in who you are or are you "doing it right."

6) The trick is to realize that the feelings are trying to be your friend so to speak and turn them into you ally. It is key to realize that they are not inferior to your thoughts and key to realize that feelings and actions are two separate things.

7) The ultimate goal is to be able to verbalize ALL feelings as this will enable you to understand their disguised message and disengage their power to control your actions. This takes practice.

 

... okay I said it was simple and wrote seven long points but the keys are

 

a. the feelings will almost always be - fear of losing, being wrong or missed out (and frustration over having missed out)

b. the underlying fuel for those feelings will be a feeling of "not being good enough"

 

.... and EVERYONE experiences this. So... try to see how this basic experience occurs in your trading and find mechanisms that work for you to disconnect those disguised feelings from your decision/action to enter or exit.

 

hope that helps - DKS

[Kiwi 16]

Another interesting argument for simplification: your brain has recently been shown to use the same areas for "working memory" that it uses for "self-control." It's also been shown to tire (as suggested by Denise saying "don't trade when you are tired or mental static is high). If you do a self control act then you use up some of your reservoir of self control - but if you use your working memory you also use up some of your reservoir of self control.

 

So, if you exercise your working memory (lots of complexity in your trading system will achieve this) then your self-control will decline and you are more likely to act poorly in response to your emotions rather than following your planned responses to your emotions and, thus, your trading plan.

 

This is also another reason why day trading exposes more issues than swing trading - with swing trading you have time to replenish your brain capacity before next making trading decisions.

[minoo 11]

Visualization, has help exercise my mind; for me it defuses the energy-burst which I previously was not able to much control.

I made use of my diary to write about myself as a learner and questioned my undesirable behaviour, somehow it helped my concious to see it eventually while trading (ie anticipating market action at approaching areas & pre-deciding action with conditions & narrowing focus to price-action or market internals)

I did use to meditate occationally; And than frequently when I faced challenges to learn to trade,.

Since I started doing Visualization it has helped me a lot in certain aspect of my trading behaviour.

 

I would like to quote an interesting Para, from Vadym Graifer, Tape Reading Book (Pg 30)

Sub-Title: Using a Trading Journal

------------>

The other purpose is to determine by analyzing these trading statistics what is happening in a trader's mind. However, most mental changes and developements occur subconscicously. It's hardly somethig we realize and recognize while we're trading. Any attempt to write this kind of thing down will most likely lock us into the mindset of "what we think we think." For Example, if problems with our mindset lie below the conscious level, then how would writitng down these things help us determine when we go wrong ? We would most likely write down not what really happened in our mind but merely repeat that same erroneous thinking process that took us nowehere during the trade. Instead, my approach led to an objective take on my reactions and allowed me to analyze my weaknesses. This journal served as a window into the inner world of a trader's mind. <-------------------

 

Enjoy Minoo

http://greatday.com/v.html?2119s07MRpn8

[traderpsyches 10]

V

 

I would like to quote an interesting Para, from Vadym Graifer, Tape Reading Book (Pg 30)

Sub-Title: Using a Trading Journal

------------>

" Any attempt to write this kind of thing down will most likely lock us into the mindset of "what we think we think." For Example, if problems with our mindset lie below the conscious level, then how would writitng down these things help us determine when we go wrong ? "

http://greatday.com/v.html?2119s07MRpn8

 

If one takes the attitude that they are researching themselves and their sequence of Feelings-Thinking-Action then indeed the process of introspection can reveal boatloads of information about oneself that one was previously unaware of.

 

Indeed it is easier to come about this information through conversation with a coach who knows what to listen for but many of my clients or even would-be clients have come to realize lots of things about their unconscious patterns through writing alone.

 

It is a great tool for those who are inclined to do it. For some it is too hard and another tool is needed. But behind each tool needs to be the quest to understand the same sequence - feelings, thinking, actions - because that is how the brain works and that is where the pay-dirt lies in terms of trading.

[darthtrader2.0 10]

A statement often seen on boards.

Perhaps this is not the case here. Never having met an emotion free trader I am genuinely curious. Feel free to give a little history that would support your expertise Mea.

 

Well, I have to admit I'm in Mea's camp.

While I love Steenbarger's work taken as a whole, I find even his more specific pyschology stuff to be a bunch of wishy washy nonsense. I do know I'm a bit biased though as I don't respect the field of pyschology much and believe Freud to be the biggest intellectual fraud in human history, Skinner to be outdated and wrong, Jung absurd...ect, ect...

To me the best "trading pyschology" text is "Judgment under Uncertainty: Heuristics and Biases" by Kahneman, Slovic and Tversky. To me though the ideas in this book have little to do with live trading and more in how you come up with setups. You should at least be aware of the hardwired heuristics and bias you were born with, then maybe you can plan ahead in your research to combat those.

To me a huge cultural bias that should be combatted is that I believe everyone finds this game with the idea of making tons of money quickly. When traders "luck" card/capital runs out, they leave the table with ideas of not being "good" enough, trading is bogus, ect...as opposed to coming to the table with the idea of spending decades sharpening a skill to razor sharp perpection.

The Dalai Lama would not make a good trader if he is trading a system that simply doesn't work. I don't care if he can pretend to visualize it over several lives...

The biggest thing I don't get with "trading psychology" is why very obvious things are not mentioned instead of this "new age" garbage...

If you don't feel creative, then learn a right brain craft...painting abstract art, learn to improvise jazz, learn to sequence original music on your computer..

If you don't think probabilistically enough then get some text on probability theory, get good at other probabilistic games..

If you don't think left brained enough then take a math class at community college, learn to code..

If you take too much risk trading then take up a hobby that is really boring to an "adrenaline junky"...

If you don't take enough risk, take up skydiving.

[traderpsyches 10]

 

If you don't feel creative, then learn a right brain craft...painting abstract art, learn to improvise jazz, learn to sequence original music on your computer..

If you don't think probabilistically enough then get some text on probability theory, get good at other probabilistic games..

If you don't think left brained enough then take a math class at community college, learn to code..

If you take too much risk trading then take up a hobby that is really boring to an "adrenaline junky"...

If you don't take enough risk, take up skydiving.

 

Those are actually great suggestions... if one can do them. But, would they really change your trading behavior? - as the ingrained and unconscious emotional patterns that lead to impulsivity will still be there even if one did each of these things.

 

Check this out for an update to Decisions Under Uncertainty from a Neuroeconomics point of view - the latest from the world of Tversky et.al. and the Society for Neuroeconomics.

 

http://traderpsyches.com/blog/?p=214

 

- The Brain on Risk by Elise Payzan of the Lab for Decision Making Under Uncertainty at the Swiss Finance Institute.

[Flojomojo 10]

Here some statements of an interesting article from MITs Anrew Lo. He did a study with 33 daytraders to try to link emotional states with P&L:

 

"The results from this experiment confirm and extend those of Lo and Repin (2002) and Steenbarger (2002): we find a clear link between emotional reactivity and trading performance as measured by normalized profits-and-losses."

 

"Specifically, the survey data indicate that subjects whose emotional reactions to monetary gains and losses were more intense on both the positive and negative side exhibited significantly worse trading performance, implying a negative correlation between successful trading behavior and emotional reactivity."

 

"Also contrary to common intuition regarding typical personality traits of professional traders, the psychological traits derived from a standardized personality inventory survey instrument do not reveal any specific “trader personality type” in our sample. This raises the possibility that different personality types may be able to function equally well as traders after proper instruction and practice."

 

"This suggests that emotional reactivity may be counterproductive for trading performance, but the differences are not large enough to render this conjecture conclusive. However, subjects whose emotional states exhibited higher correlations with their normalized daily profits-and-losses (Pleasant with gains, Unpleasant with losses), do tend to have worse overall profits-and-losses records, supporting the common wisdom that traders too emotionally affected by their daily profits-andlosses are, on average, less successful."

 

"...our results show that extreme emotional responses are apparently counterproductive from the perspective of trading performance."

 

As I am definitely to be categorised as a beginning trader I don't consider myself to have much valuable input for this discussion...and I rather read the input of ppl here that I have come to value. The only 2 cents I can throw in is:

 

I agree with Lo that the extremes tend to "short circuit" my more complex decision making faculties. Hence I think that "the zone" is somewhere in between and whenever I become aware of an (for me) unusual emotional state I start to analyze its root and start questioning my entry/exit criteria for the trade. By now I also immediately walk away from my desk for the day when entering the negative extreme of the spectrum in order to give my head the time to reestablish the right mindset.

AERPub.pdf

[BlowFish 10]

Haven't read the paper Flojomo but from your quotes I got a couple of alarm bells going off. They talk of " the survey data indicate that subjects whose emotional reactions to monetary gains and losses". They then appear (from the quotes) to go on and make there conclusions on emotional reactivity in general. Guess I should read it before jumping to conclusions.

 

They seem have statistical evidence that "scared money doesn't win".

 

 

I enjoyed Payzan's article btw.

[MightyMouse 12]

Well, I have to admit I'm in Mea's camp.

While I love Steenbarger's work taken as a whole, I find even his more specific pyschology stuff to be a bunch of wishy washy nonsense. I do know I'm a bit biased though as I don't respect the field of pyschology much and believe Freud to be the biggest intellectual fraud in human history, Skinner to be outdated and wrong, Jung absurd...ect, ect...

To me the best "trading pyschology" text is "Judgment under Uncertainty: Heuristics and Biases" by Kahneman, Slovic and Tversky. To me though the ideas in this book have little to do with live trading and more in how you come up with setups. You should at least be aware of the hardwired heuristics and bias you were born with, then maybe you can plan ahead in your research to combat those.

To me a huge cultural bias that should be combatted is that I believe everyone finds this game with the idea of making tons of money quickly. When traders "luck" card/capital runs out, they leave the table with ideas of not being "good" enough, trading is bogus, ect...as opposed to coming to the table with the idea of spending decades sharpening a skill to razor sharp perpection.

The Dalai Lama would not make a good trader if he is trading a system that simply doesn't work. I don't care if he can pretend to visualize it over several lives...

The biggest thing I don't get with "trading psychology" is why very obvious things are not mentioned instead of this "new age" garbage...

If you don't feel creative, then learn a right brain craft...painting abstract art, learn to improvise jazz, learn to sequence original music on your computer..

If you don't think probabilistically enough then get some text on probability theory, get good at other probabilistic games..

If you don't think left brained enough then take a math class at community college, learn to code..

If you take too much risk trading then take up a hobby that is really boring to an "adrenaline junky"...

If you don't take enough risk, take up skydiving.

 

Your comment on the field of psychology seems incredibly similar to the comments that Tom Cruise made on the field of psychiatry in an interview with Matt Lauer.

 

Simply, one shouldn’t write off or put down the field of psychology when they are not remotely qualified to do so. Having taken psyche 101 or read a few articles on the topic does not make you an expert. Frankly, Darth, don’t be glib.

[traderpsyches 10]

A key to note in Lo's work is the word - reactivity. This links the experience of a feeling with action.

 

Lo has also written the emotion and logic are two sides of the same coin. You HAVE to be emotional to make a decision...

 

so the conundrum lies not in trying to become less emotional but in learning what to do with the feelings you experience. The problem with being emotional only comes when those emotions are acted-out in trading decisions. An emotion alone never made or lost a dime...

 

As another study by Seo and Barrett shows, using emotion analytics and personal emotional research leads to an understanding of the emotion one is experiencing and a better series of trading decisions.